The Pisco Sour Edition

Summary

Slate Money – The Pisco Sour Edition

Date: June 11, 2016
Host: Felix Salmon
Guests: Jordan Weissman, Cathy O'Neil

Episode Overview

This week’s Slate Money, cheekily dubbed the "Pisco Sour Edition," brings together Felix Salmon, Jordan Weissman, and Cathy O’Neil for a freewheeling discussion on business and finance. The big stories: the story of French rogue trader Jérôme Kerviel's legal and public battles, a deep dive into vulture funds and a hedge fund vs. Peru legal saga, and a debate on Scotland’s novel approach to alcohol regulation. Along the way, the hosts riff on labor tribunals, financial journalism, and more, delivering colorful commentary and financial insights.

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Key Discussion Points & Insights

1. Jérôme Kerviel: The "Hot Felon" of French Finance

Segment: [01:44] – [11:28]

• Background: Cathy recounts the story of Jérôme Kerviel, the French former Société Générale trader who lost €4.9 billion in 2008 through unauthorized trades—one of history’s biggest trading losses.
• Media and Public Image: The panel muses on how Kerviel’s good looks factor into public sympathy.
  • Cathy: “You look at pictures of him on the Wall Street Journal and it really looks like an ad for like watches or something...this guy’s really attractive, and we’re going to come back to that, because I’m wondering if that’s part of it.” [02:06]
• Financial Journalism Rare Moment: Unlike most financial reporting, the Kerviel scandal offered true causality—a direct event caused a specific market move.
  • Cathy: “This is one of the very, very few times when you can say, this futurist stock index was down because they were unwinding a massive trade in SocGen...the only time ever you can actually write an article like that.” [11:13]
• Court Ruling: Against all odds, a French labor tribunal awarded Kerviel €450,000 for wrongful termination, despite his colossal trading loss.
  • Felix: “Losing $6 billion is clearly not good enough reason to get fired if you work in France.” [05:27]
  • Jordan: “On the one hand, it is obviously funny that they said you did not have cause to fire this guy who was theoretically a rogue trader and lost you €4.95 billion. On the other hand…a lot of people feel he was unfairly scapegoated for this kind of bigger corrupt system.” [06:18]
• Debate: The hosts discuss whether Kerviel was a scapegoat or a lone fraudster, and whether financial institutions turn a blind eye to profitable “rogue” behavior.

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2. Vulture Funds vs. Peru: The Gramercy Land Bonds Saga

Segment: [11:28] – [23:21]

• Background: Explores the Gramercy hedge fund’s battle to claim $1.6 billion from Peru on ancient "Peruvian land bonds" issued after a 1960s land reform.
  • Felix: “There’s almost nothing more obscure than the Peruvian land bond.” [12:25]
• History: The land bonds were compensation to landowners whose land was expropriated by Peru’s military junta. Decades later, Gramercy bought up these “worthless” bonds from individual Peruvians.
• Strategy: Gramercy waited patiently, knowing statutory interest in a low-rate environment would make the claim even more valuable:
  • Felix: “A great thing about zero interest rate environment is that defaulted debt can look extremely attractive...they would actually rather that Argentina stayed in default for another year just so they could claim that extra.” [15:23]
• Leverage Shift: When the Peruvian president’s office allegedly committed fraud to influence a court opinion, Gramercy shifted tactics—claiming violation of a US-Peru bilateral investment treaty. Now, the dispute could be judged by an international tribunal, potentially forcing Peru to pay.
  • Felix: “They’re suing over this action which the Peruvian government took, which effectively expropriated the bonds...now they have a foreign court…which can theoretically rule on this.” [18:22]
• Political Context: Peru’s new president, Pedro Pablo Kuczynski, is a sophisticated banker likely to engage in pragmatic negotiation.
• Panel Opinions:
  • Jordan: “I don’t quite share Felix’s enthusiasm for [vulture funds], but…they are kind of a buyer of last resort for debt. And you kind of need that in the markets, if you have traded securities. But these are not traded securities.” [21:43]
  • Cathy: “It's basically they turn broken promises of debt into money.” [22:15]
• Economic Consequences: None of the proceeds benefit the Peruvian economy—just hedge fund investors.

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3. Scotland’s Minimum Alcohol Pricing: A Pigovian Experiment

Segment: [24:22] – [34:01]

• Background: Scotland passed a law setting a minimum price per unit of alcohol to curb excessive drinking, rather than using a traditional alcohol tax.
  • Jordan: “Typically when a government wants to try and discourage people from some really unhealthy behavior, a really simple thing to do is just tax it...But Scotland is trying to do something a little bit different with alcohol right now.” [24:22]
• Why Minimum Pricing? A tax would hit all price points (including expensive whisky) and wouldn't necessarily target problematic drinking. The new policy specifically increases the floor price for cheap, high-alcohol products—e.g., cheap cider and beer—without affecting pricier liquors.
• Legal Fight: The Scotch Whisky Association challenged the policy in court; European Court of Justice ruled it must be proven more effective than regular taxes for public health.
• Comparisons: The hosts note similar public health-inspired taxes in Philadelphia (on both sugary and diet sodas) and explore parallels with American alcohol regulation after Prohibition, and with theoretical heroin regulation.
  • Cathy: “After Prohibition was ended...they did sort of define alcohol content for categories like beer and wine...You could call it a success story of legalizing this previously illegal substance. And I want to compare that, if you don’t mind, to the heroin addiction, the heroin epidemic...” [31:13]
• Panel Verdicts: Overall, the hosts agree the minimum pricing experiment is worth trying, citing evidence from Canada and cautioning that real-world effects will be closely studied.

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4. Numbers Round

Segment: [34:01] – [39:24]

• Cathy's Number: 60,000—amount in dollars a NYC prison guard boss received as a kickback, delivered in a Ferragamo bag, for steering union money to a hedge fund. [34:12]
  • Cathy: “He’s, like, really into Ferragamo as a brand.” [34:46]
  • Felix: “It is a shitty hedge fund. It’s a very shitty hedge fund. But at least it got good returns.” [35:35]
• Felix's Number: 65 billion pounds—the amount that left UK sterling assets in March in anticipation of the "Brexit" referendum, signaling serious financial jitters. [36:40]
• Jordan's Number: 1400—the kilometers Jérôme Kerviel walked on his “reverse pilgrimage” from Rome to France, as part of his self-reinvention after the scandal. [38:23]
  • Jordan: “He met the Pope...then decided to do a reverse pilgrimage from Rome to the French border...the Johnny Appleseed of former rogue traders.” [38:41]

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Notable Quotes

• On Kerviel's legal win:
  • Felix: “Losing $6 billion is clearly not good enough reason to get fired if you work in France.” [05:27]
• On vulture funds and debt:
  • Cathy: “It’s basically they turn broken promises of debt into money.” [22:15]
• Financial journalism pet peeve:
  • Cathy: “So often you see a financial journalism article starting with ‘stock market is up on news of such and such’...and it’s just a sort of empty article that means nothing. And this is one of the very, very few times when you can say, this futurist stock index was down because they were unwinding a massive trade in SocGen.” [10:41]
• On Scotland’s alcohol policy:
  • Jordan: “They’re specifically saying we’re going after cheap booze that poor people drink and we’re not getting the money.” [29:48]
  • Felix: “There is substantial empirical evidence that if you raise the price of alcohol, then people will drink less.” [30:43]
• On legalizing and regulating heroin:
  • Cathy: “If we like legalized and regulated heroin, I know it’s radical, but this kind of law about how strong heroin is allowed to be would actually be very powerful.” [32:30]
• On public policy experiments:
  • Jordan: “…It’s interesting to see a whole…country do this and just compare their results…” [33:15]

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Memorable Moments & Humor

• The Ferragamo bag bribe: The incongruity of a blue-collar union boss receiving cash in a luxury handbag as a kickback. [34:12 – 34:53]
• The “Gentle Junta” band name: Spontaneous band name creation.
  • Jordan: “That’s my band name, by the way, Gentle Junta.” [13:49]
• Pisco Sour digression: A quick detour about the origins and national pride around the Pisco Sour cocktail. [23:22]

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Timestamps for Major Segments

• Jérôme Kerviel Rogue Trader Story: [01:44] – [11:28]
• Vulture Funds vs. Peru: [11:28] – [23:21]
• Scotland’s Minimum Alcohol Pricing: [24:22] – [34:01]
• Numbers Round: [34:01] – [39:24]

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Tone & Style

Slate Money’s hosts balance sharp, sometimes irreverent humor with astute financial analysis. Their conversational style allows for both rigorous, technical explanation and playful banter (“Gentle Junta,” “how hot he is”). Even complex subjects—sovereign debt litigation, labor laws, fiscal policy—are rendered accessible and relatable.

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This episode offers a dynamic, entertaining, and insightful look at finance headlines, with lots of context, skepticism, and the occasional sideways glance at the absurd. Whether you’re interested in global finance or just want to know what a Pisco Sour is, this edition covers plenty of ground.

Transcript

[A]

Hello and welcome to the Pisco Sour edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Fusion. I am joined as ever, by Slate Moneybox columnist Jordan Weissman.

[B]

Hello, Felix.

[A]

Also by international business class traveler Kathy o'. Neill.

[C]

Hello.

[A]

Who's been jetting off to Paris and hanging out with Monica Lewinsky and generally being fabulous.

[C]

Fabulous, that's the right word.

[A]

Ville and foie gras.

[C]

I confess.

[B]

Wait, so did you hang with Monica?

[C]

Well, we went to the same dinner at the Louvre, but I didn't actually sit at her table.

[B]

You're not besties.

[C]

Not yet.

[B]

I'm heartbroken.

[A]

So we are not gonna talk about Monica Lewinsky since we haven't been talking.

[C]

I did like her talk.

[A]

Oh, she gave a good talk. Was it about bullying?

[C]

Yeah.

[A]

We are going to talk about some bullies. There's a segue. We are going to talk about Gramercy of hedge fund in Connecticut which is trying to bully the Peruvian government into paying it $1.6 billion. We are also going to talk about chavs, who are the English equivalent of. What's the American translation of chav?

[B]

I think just like a drunk ass bro would be the kind of.

[A]

We're going to talk about this thing that exists in Scotland and I can definitely have. I have hand experience of this, which is drunk people. And the Scots have decided they're gonna do something Pigovian about it.

[B]

Indeed.

[A]

But first I want to talk about. Rather, Kathy wants to talk about a hot felon. Well, not really, but there is this rather good looking man in France.

[C]

Yeah, I'm all about French this week. So Jerome Kerville, did you meet him.

[A]

When you were in Paris?

[C]

I didn't. I don't know why you didn't get.

[B]

To hang with any of the cool people in Par.

[C]

I just, you know, you look at pictures of him on the Wall Street Journal and it really looks like an ad for like watches or something. Even though there's no watch in the picture. But that's not actually a requirement of watch ads. Anyway, this guy's really attractive and we're going to come back to that because I'm wondering if that's part of it. I honestly am. But like, let's remind that listener.

[A]

He's got a little bit of like, design and stuff. He looks a bit like Clive Owen or Liev Schreiber. Like a cross between Liev Schreiber and Clive Owen.

[B]

He's like a skinnier Liv Schreiber. That's kind of.

[C]

Okay. So what is he known for? So in 2008, he like, surprised the entire financial world by losing 4.9 billion euros to. For Societe General, which is a French bank.

[A]

And this, I remember this vividly because it's at the height of the credit crunch and everyone is really nervous about the credit crisis. And suddenly the markets start going crazy and everyone's like, oh, my God, the crisis has metastasized and it's got worse and it's in all of the markets and everything's selling off. And the Fed has an emergency Fed meeting and cuts interest rates. And then a few days later, after this emergency rate cut, we discover that in fact, it had nothing to do with the credit crisis and it was just a rogue trader at Soc Gen and everyone was trying to cover his shorts and everything.

[B]

One dude who apparently didn't have permission. Big, big position, or didn't have permission for his big position on the direction of the stock market.

[C]

And. Right. So that's really what it comes down to is whether he had tacit permission or not. So what happened is that basically he was hired to be to sort of trade on what are called arbitrage, discrepancies between equity derivatives and cash equity prices. And that is to say, if you see the actual, like, stock market index go up, is the future index also going up? And if not, then you can try to trade on the difference. He started making fictitious trades in late 2006 and all through 2007. And he, you know, when I say fictitious trades, he would trade something and then sort of COVID up his tracks with fake paperwork. And every now and then the fake paperwork was discovered by his managers or his manager's managers, and he would just sort of paper it over with even more fake or slightly different paperwork. And his interpretation of this was they knew he was a rogue trader and they let it slide. And their interpretation of it, it was at least after the fact, because when they made up for. When they. When they liquidated his position, they lost just a ton of money, 5 billion euros. So their position was. We never gave you that permission. You're crazy. You're a road trader and you should pay us back. The original, the original, like judge in the sentencing actually charged him with a crime and told him to pay back 5 billion euro.

[A]

So Jerome Cavill was for many years, and I think actually technically still is, the poorest man in the world. Yes, he has a net worth of -6 billion.

[B]

Something along those lines.

[C]

But all of this has changed because guess what? A new judge has come up with an award for him. Believe it or not, they said he was fired without cause.

[B]

Yeah. So a French labor tribunal losing $6.

[A]

Billion is clearly not good enough reason to get fired if you work in France.

[C]

Listen, I want to. I want to say a little bit about that loss, by the way, and you're right, Felix, that the entire financial community noticed that these stocks were going down and the futures values were going down as well, and they were tanking on this one day. And, you know, then we got found out a few days later exactly what happened. And it was a rare moment for people in finance because we actually got to find out how much money was traded, how many futures were traded, and we got to see what the impact of that trading was, which was a lot of loss on the market. I remember when I was working at Shaw that we actually used that case, that one day trade, to measure our personal model for what impact looks like on trades. So we actually used it as sort of a data point.

[B]

So I have a question. How outraged are we actually, or bemused by this French Labor Tribunal, are we? Because on the one hand, it is obviously funny that they said you did not have cause to fire this guy who was theoretically a rogue trader and lost you $4.95 billion. Whatever. On the other hand, the way I'm seeing this case get kind of like played out in the press in Europe is a lot of people feel he was unfairly scapegoated for this kind of bigger corrupt system. And this. And the message that this tribunal is sending is, look, you guys did know what he was up to.

[A]

Wait, what bigger corrupt system? You mean Soc Gen?

[B]

Yeah, I mean, this is literally what. This is how. This is. I'm saying this is how it's playing out among a lot of.

[A]

Okay. But let's be clear about what the, quote, unquote, bigger corrupt system is. Because all banks have rogue traders, it is impossible, realistically, to have 100% protection against a rogue trader. Now, you can put in controls and make it very, very hard for people like Jerome Creville to do what he did. But we've seen this at ubs, we've seen it at Barings, we've seen it soccer, and we've seen it even at JP Morgan with the London Whale.

[C]

And so that's all the more reason to argue that point. Like, they did nothing. They've found him multiple times doing weird things, and then he fixed them, quote, unquote. He never went on vacation because he had to babysit his fake trades all the time. If they had any kind of fraud detection in place, they would have seen him.

[A]

Okay, so again I'm going to push back on this one. Like ex post. It's very easy to say you should have caught this in every single one of these cases. It's very easy to say you, you should have caught this. And in every single one of these cases it's true, they should have caught it. It's just that there are so many traders in so many banks that it shouldn't come as a surprise that once in a while one of these things gets through. And when one of those things gets through, that is not an indictment of like the entire bank being corrupt as Jordan's kind of implying. It's just saying there was a cock up.

[B]

Well, okay, so I'm not, I'm on the fence about whether or not it's really corrupt, but I'm trying to play devil's advocate here which is kind of relay his point that he' been and this is to some degree self serving on his part and kind of PR and he and we can get more into how he's kind of tried to rebuild his public image and make himself to a folk hero. But his saying is that or his point is that rogue traders are really common and that they only get caught when they make a loss. Not just because that's when it becomes really obvious when something's going on, but also because that's when anybody cares. People will discover a rogue trader possibly, but if they're making money, everyone kind of turns a blind eye. And that's what he's saying is the corruption in the system that the behavior is effectively encouraged in a lot of ways in finance except when you lose the house's money. And so I mean I don't have enough personal insight into how these institutions actually operate to really judge that, but I do wonder if there might be a head of truth to it.

[C]

Well, one thing you can say for sure is that the recent finding by the court is a little bit insane because they awarded him €450,000 as for being fired unfairly and €300,000 of that was a bonus for all of the fake trading he was doing in 2007. And it makes, you know, the money in 2007 though if you completely disregard the soc gen like controls which were insufficient obviously, if not totally corrupt. You know, you just have to ask yourself what kind of incentives does this give to future rogue traders.

[B]

That's true because you can't even get fired now. For it. Yeah.

[A]

And I'm particularly impressed by this idea that you should get a bonus for fake profits, even if those profits turned into like multibillion dollar losses. And I'm also impressed by the idea that. The idea is that he should get paid €300,000 as a bonus for 1.3 billion euros in profits. And that's a red flag right there because Anyone who's making $1.3 billion in profits is going to want a lot more than €300,000 as a bonus.

[B]

Well, it's France expectations are a lot lower for. It's a less competitive system.

[A]

Anyway, in case you have, dear listener, a job which you're worried about losing, I can recommend that you move to France because there's just no way you can ever be fired.

[C]

Hey listen, I'm gonna take this opportunity, if you don't mind, to rant just a little bit about financial journalism.

[B]

I thought you were gonna talk about how hot he was again. Cause he is really hot.

[C]

We're go back to that for sure. No, but I mean. So I don't know if it's a pet peeve of your guys, but it's my pet peeve that so often you see a financial journalism article starting with st stock market is up on news of such and such and that such and such was like decided after the fact by what, you know, what they decided was good news in the market. And it's just a sort of empty article that means nothing. And this is one of the very, very few times when you can say this futurist stock index was down because they were unwinding a massive trade in soc gen. And it's so rare that I just like to point it out like this is the only time ever you can actually write an article like that.

[B]

Actually causality in the market.

[C]

I mean there are a couple moments when there's crisis that you can point to something, but it's almost never it's true.

[A]

And now we are going to talk about vulture funds, which are my favorite subject. Now. We have talked about vulture funds a.

[C]

Lot on this, mostly for Argentina.

[B]

Typically.

[A]

Argentina entirely in Argentina. I don't think we've talked about vulture funds in any country other than Argentina.

[B]

Sure, there has to have been some.

[A]

I'm thinking about a little bit of Puerto Rico.

[B]

Puerto Rico we've talked about.

[A]

Yeah, I don't even think those count as vouchers.

[B]

They're not vulture.

[A]

They're not really vouchers. We have another real old fashioned vulture fund in Peru. And Peru is where the vultures really first made their name. The big Argentina case was Elliot versus Argentina. But that was not Elliot's first big vulture win. Elliot's first big vulture win was Elliot versus Peru. And that's where they rehearsed a bunch of the bizarre pari passu concepts and stuff that eventually got them so much money in Argentina.

[C]

Did Elliot like, did they invent vulture funds? Are they the original.

[A]

Elliot didn't invent vulture funds, but they were the first large scale hedge fund to do it. Like, to do it at scale, would.

[B]

You say they perfected it, Perhaps there.

[A]

Were vulture funds who would buy up a couple million, but Elliot was the first to start doing it in the tens and hundreds and even billions. In 2006, another hedge fund called Gramercy decided they were going to get involved in this game. And they started buying up these things called Peruvian land bonds, which are the most wonderful. These are why you become a financial journalist, because you get to nerd out about really obscure financial instruments. There's almost nothing more obscure than the Peruvian land bond. No one had heard of them until 2006. And what they are is there was this military junta which came to power in the late 60s in Peru when they had good communist bona fides. And so they confiscated all of the land from the landowners and distributed it to the peasants. And in return for the land, they paid the landowners these bonds.

[B]

I'm kind of surprised that they bothered with that.

[C]

They're IOU notes, basically.

[B]

Yeah, but isn't that pretty gentle for communism, giving you some sort of financial instrument in return for the.

[A]

It was a Gentle hunter.

[B]

That's my band name, by the way. Gentle Junta.

[A]

The Gentle Junta. So the Gentle Junta gave out these land bonds, and they paid on the land bonds for over a decade. But eventually, this being Latin America, they defaulted. And they were local law instruments which were all held in very small denominations by individual landowners. And the landowners just kind of threw up their hands and said, we're never seeing our money again and forgot about them for 20 years. Until one day they get a knock on the door from Gramercy saying, hey, do you have an old bond certificate, you know, gathering dust in the back of a drawer somewhere? And they said, funny you should mention that. I do. And Gramercy started buying up these bond certificates for anyone.

[C]

Question is Gramercy New York based?

[A]

Connecticut. It used to be based in Gramercy park in Manhattan, but then it moved up to Connecticut.

[B]

Gramercy park got a little bit too low class for them, so they decided to go to Greenwich.

[C]

And how did they figure this out? They must just had some really good researcher who are like, yeah, they had.

[A]

A guy who, you know, they had, like, Peruvians working for them.

[C]

Yeah, they must have been Peruvians because they figured out the addresses of these people who own these old bonds.

[A]

They hired a bunch of Peruvians to go, like, literally door to door just.

[B]

Trying to find these vulture funds look hard for a meal. Like, they really do. Like, I mean, the work that goes into this. It's not easy being a vulture.

[C]

Oh, wow.

[A]

And now they've sat. No, I mean, it's true. They have put a lot of work into it and a lot of time. They've been sitting on these bonds for a decade now.

[C]

I mean, sorry to interrupt so many times. I know this is a great story, but it's fascinating how long they're willing to wait rate for this payout. Do they just have an infinite amount of money they can just sit on?

[A]

Well, one of the great things about a zero interest rate environment is that defaulted debt can look extremely attractive because what happens is that you generally get statutory interest or some kind of nominal interest rate on the bonds, which is higher than what you could get if you just got paid out. And so in the Argentina case, for instance, if Argentina was offering to pay out in full today, a lot of the vulture funds would have had every incentive to say no and delay through court proceedings for another year if they would get 7% statutory interest for another year. And so they would actually rather that Argentina stayed in default for another year just so they could claim that extra.

[C]

As long as they eventually get them.

[A]

Because they can't get the 7% anywhere else these days because we have this zero interest rate environment.

[C]

Wow.

[A]

And we're seeing that with the claims of Lehman Brothers and with like Madoff claims and stuff like that. A lot of these things are literally being held up in court just so that the interest can continue to accrue.

[C]

That is fucked up.

[B]

A technical point I'm curious about that interest is accruing, but they don't actually receive the money in their own account until everything's paid out.

[A]

Right, right.

[B]

Okay, Just checking.

[A]

It's all paper gains. Yeah. But in any case. So what's happened is the Gramerc was sitting on this paper and had no real idea how it was going to get paid. They tried going up to the government and saying, you owe us this money. And the government was like, fuck off. Which just makes sense because this is money. Why would the Peruvian government, which Peru is not a very rich country. Want to give some Connecticut hedge fund a billion dollars when there's obviously better things that the Peruvian government can do. It's local law. So like, so there's no New York judge, There's no New York judge who's going to come down on this. Except what happened was that Peru made a mistake. And this is the other thing you can do as a voucher fund. You can just be patient and wait for your opponent to make a mistake. And that's exactly what happened, is that Orlando Umala, the leftist populist president of Peru, saw one of these many land bond cases go up to the Constitutional tribunal, which is the Supreme Court in Peru, and for whatever reasons decided that he didn't want the Constitutional tribunal to rule in favor of gramercy. Not that he would have paid either way, but he decided he didn't want that ruling. So he sends his bagman in to literally just take a dissenting opinion, put a whiteout on it, like, forge the judge's signature and turn it into the majority opinion. And by doing that, so he committed fraud, Basically, he committed fraud. And more importantly, he violated a U. S. Peru bilateral investment treaty, which long postdates the actual land bonds, but predates his whiteout shenanigans.

[C]

Wow.

[A]

And so now what's happening is the gramercy is not suing over the bonds. They're suing over this action which the Peruvian government took, which effectively expropriated the bonds and said, you can't do this under this bilateral investment treaty. And so now they have a foreign court or the World bank, the International center for the settlement of investment disputes, which can theoretically rule on this. And if they rule on it, it has the status of a treaty obligation, and Peru really does need to pay those.

[C]

So that's their leverage.

[A]

So that's the leverage. And now the thing which is just happening this week is that there were these big elections in Peru. And the winner of the elections in Peru, it looks very much like, I mean, it was extremely close, was a financier, like one of the most sophisticated bankers in the Americas, this guy, Pedro Pablo Kucinski, who was chairman of first Boston for, like, over a decade, worked at the world bank and the imf. And so now you have a fascinating, fascinating, like, showdown between two incredibly sophisticated players. And I can't wait to see how.

[C]

What do you think is going to happen?

[B]

I don't know. This is Felix's bag, man. I mean, it seems like you don't want to get dragged into trade court over, like, faking court decisions. That's like something you don't want to.

[C]

What could the court, like, what could the court threaten to do if they don't pay this?

[A]

The court can hand down a judgment and then the judgment, basically, at this point, especially if Pedro Pablo Kicinski is president, he will pay an ICSID decision. You can be pretty sure about that now. It takes years for ICSID decisions to actually come down. So what's probably gonna happen is that ppk, as everyone calls him, is gonna sort of negotiate quietly in the shadow of the Ixid hearings and try and maybe come to an agreement that way. Because the worst possible outcome, really is that Peru winds up being forced to pay off Gramercy and still leaves all of the other Peruvian land bond holders who are actually Peruvian and live in Peru and would actually reinvest the money in the Peruvian economy and leaves them with nothing. If they're going to pay off the land bonds, they should at least pay off the land bonds rather than just Gramercy.

[C]

Do the land bonds actually say exactly what they're going to pay off and what currency?

[A]

Oh, and that's the other thing. Yes, they do, except that the currency they're denominated in is like two currencies ago in Peru.

[C]

So that's the angle, right?

[A]

And so that was the angle that the Peruvian government took, was there was two currencies ago, and so they offered like 1 billionth of what I mean.

[B]

I feel like that's kind of, kind of legit. Like, that's the risk.

[A]

And now there's a big fight about. Because it's very common to index these things to the dollar or to CPI or to inflation. And so there was a million different ways you can index these things. It gets gnarly.

[B]

So can I. Can I just share my one observation about this case, which is that in general, I don't have super hard feelings about vultures. I think I don't quite share Felix's enthusiasm for them, but I don't look at them as, like, pure, like, manifestations of evil. Like, they often get treated in the press in the U.S. i think that's because they do serve one important purpose, which is they are kind of a buyer of last resort for debt. And you kind of need that in.

[A]

The markets if you have, like, traded securities. But these are not traded securities.

[B]

And that's what I was about to say is that this is like the worst case scenario for Vulture Fund, where they are literally just finding some obscure instrument that has been sitting as you said, gathering dust in a drawer. Completely irrelevant to the functioning of anybody's market at this point. Denominated in a currency that no longer exists. And saying, pay us for this. I mean, this is. This is the kind of evil that people kind of caricature them for. Typically, I think you have to admire the hustle, I think. But it is.

[C]

Well, you know, here's my thing about it, since we're having our things about it, which is that it's basically they turn promises of debt that have been broken, broken promises of debt into money. Sometimes they put pressure on that. But things like, I promise you to pay a pension after you retire if you're a teacher or a fireman, that kind of thing. I don't think vulture funds ever pick up on. It's only certain kinds of bonuses.

[A]

You see, those things are not transferable.

[C]

Exactly.

[A]

So that's the problem. But yeah, I mean, they're definitely getting into litigation finance. We talked about that with the Peter Dior case. They're definitely investing in weird things which aren't always securities, but it needs to be something which a third party is allowed to invest in. And of course, it goes without saying that if Gramercy does get this $1.6 billion, none of that is going to go back into the Peruvian economy in any way shape or it's all just going. It's just going to be a massive dividend to the rich people who invest in hedge funds.

[B]

It's just going to make.

[C]

It's just going to make, like, daycares in Stanford, Connecticut, even more expensive.

[A]

Exactly.

[B]

Jesus.

[A]

Jordan.

[B]

Yes, Felix?

[A]

Do you fancy a drink?

[B]

I do. I'm a little sad that we called this episode the Pisco Sour Edition and are not drinking right now.

[A]

Pisco Sour is one of the weird. I'm going to digress just for one minute here.

[C]

What's Pisco?

[A]

Pisco is a Andean rum, basically white liquor. It's generally drinking in the drinking. It's generally drunk in the form of a cocktail known as the Pisco Sour, which is pisco and sour mix. The big question is, do you put a little bit of bitters in there?

[C]

If you're gonna say what we regret, I'm gonna regret that Jerome Herville is not with us. Drinking with us.

[A]

Yeah, Jerome should be drinking a Pisco Sour with us. But anyway, there's a huge fight basically between Peru and. And Chile about who invented the Pisco sour.

[B]

Not unlike the fight between Scotland and Ireland about who invented whiskey.

[A]

Indeed. And so you can always tell whether you're in Chile or Peru by whether or not there's bitters in your pisco sour.

[C]

I see.

[B]

Anyway, anyway, trying to transition back to the British Isles, but yeah, so we're talking about, as you said, chavs, but more generally something interesting going on with alcohol regulation in Scotland. So just kind of backing up a little bit. Typically when a government wants to try and like discourage people from some really unhealthy behavior, a really simple thing to do is just tax it. Right, Right. You tax cigarettes, people smoke less, you tax sugary drinks, people drink fewer of them. But Scotland is trying to do something a little bit different with alcohol right now.

[C]

So alcoholism is a big problem in Scotland.

[B]

It's a bit. Yeah, it's a big problem and it's, it's become. So one stat I've seen cite a lot is that alcohol related deaths about doubled between the 80s and 2011 and they have about 80% more alcohol related deaths in the rest of England or the rest of the UK as well.

[C]

What age group is that or is.

[B]

It everywhere in general? So drinking is sort of, it is an issue specific, I mean, for all of the UK drinks a lot, but Scotland in particular is extremely heavy with alcohol.

[C]

It's like the Milwaukee of the British Isles.

[B]

Exactly, absolutely. And so what in 2012, what the Scottish Parliament did, because you have to remember they have their own parliament, even though it' sand it is a country, even though it's not technically independent, they decided to pass a law where they couldn't do anything about alcohol taxes. So instead what they did was try to pass a minimum price per unit of alcohol. And the idea here was that it.

[A]

Would not just, just by necessity, it's also by design.

[B]

Yes. And. Well, that's exactly what we're.

[A]

This is like, it's not just, well, we can't do an alcohol tax, so we're going to do this other thing. It's more that like if you raise an extra, like if you raise taxes by 10%, you know, then what happens is that your 100 pound bottle of whiskey becomes an extra, you know, 110 pound bottle of whiskey. But that doesn't discourage alcoholism.

[B]

Exactly. So that's exactly. They don't want to raise taxes on Lagavulin 16 year. They're trying to instead go after what they typically talk about as cheap, high strength alcohol. What in the US we typically just think of as like malt liquor. There they have a lot of really, really, really cheap cider that you can get in like 3 liter bottles. And that's the kind of booze they're trying to target.

[C]

So if you just like the crazy horses.

[B]

Yeah.

[C]

Of, of, of liquor, which is like the, it's, it's.

[A]

Or just really cheap beer. There's a lot of like Foster's Lager, which is this Australian lager. It's very popular in Scotland. It's like 5% and you can get it for, you know, a buck a can.

[B]

Exactly.

[C]

It's big cans.

[B]

It's big cans. And so specifically the Wall Street Journal brought this up as a example. The minimum price, it's about 50 pence per unit of alcohol. It would about double the cost of a 20 pack of Fosters. Right. So it does target these low, these low price, high alcohol, you know, drinks, booze. And so, you know, what was interesting about this is this is now it's being challenged. There were some people in the liquor industry that were for it, especially some brewers who make more expensive and some bartenders associations, things like that. But it got challenged by the Scotch Whiskey association, which again seems a little strange when you think about it because.

[A]

Because Scotch whiskey is incredibly expensive these days.

[B]

But a lot of the companies that make Scotch whiskey are owned by big, you know.

[C]

So they're making a lot of money on alcoholic beer.

[A]

So what they're doing is they're making money on the cheap beer, but they are complaining under the auspices of the Whiskey association because that gives them more credibility.

[B]

Exactly. I think, I mean, some of them are like high class liquor companies, but Pernode, I think is like one of them, but you get the idea. And so this Scotch Whiskey association has challenged this essentially in court and it made its way to the European Court of Justice, which sort of, sort of ruled against this regulation. What they said was that you can't do it unless you show that this is more proportional, quote, unquote, and more effective at helping public health than a regular tax would be. And so this idea, this question is now getting tried in Edinburgh, this question is now in before a court in Scotland. And they are determining if this minimum pricing mechanism is going to be more effective for dealing with public health than a normal liquor tax. And other countries are looking at this, Ireland's looking at it, Estonia's apparently looking at it. And this could actually become a really fascinating way to try and regulate booze and deal with excessive drinking. I don't know if it is the best way or not, but it is.

[A]

Going to be by sheer coincidence, it's coinciding with what's going on in Philadelphia where they're trying to impose a kind of similar tax on soda. Again, an across the board, like soda tax, which will be quite large. And the quirk of the Philadelphia one is that they're not just taxing sugary soft drinks, which is what most standard soft drink taxes do. They're taxing diet Cokes and diet soft drinks as well. Because everyone was complaining that the original tax was very regressive. And it was all. The poor people would get hit and the rich people wouldn't, because the poor people, for reasons which I don't entirely understand, generally drink like the full sugar sodas, and the rich people drink the diet sodas. And so they're like, well, we're just gonna do this for the money. We're not even doing this for public health reasons. We're doing it for the money. And we want rich people to pay, too. So we're gonna tax the diet sodas.

[B]

Which is actually the opposite of what's going on in Scotland. They're specifically saying we're going after cheap booze that poor people drink and we're not getting the money.

[A]

We want this thing to be as regressive as possible.

[B]

Yeah. I mean, they're saying retailers have to charge more. We're taking a cut. So unlike if they were passing a tax, they're not getting any money from this. The Scottish government is not getting any kind of a windfall here. It's just retailers charging more money for alcohol. That's all that's going to happen. And so what's a little strange to me about this, and I've looked into the research to see if there's anything suggesting I'm wrong, but in general, alcohol consumption rises with income. So I've never seen anything saying, really only poor people are alcoholics, that they're the only problem. And I've seen studies suggesting that problem drinking specifically also seems to rise with income. So this whole idea of only going after cheap booze does strike me as a little strange. But, you know, that's.

[A]

There is a little bit of. There is. No, not just a little bit. There's substantial empirical evidence that if you raise the price of alcohol, then people will drink less.

[B]

That is true. Yeah.

[C]

So I wanted to back this up a little bit historically, because I learned a little bit about the regulation of alcohol in the US After Prohibition was ended. And one of the things that they did, they didn't do exactly this, obviously, but they did sort of define alcohol content for categories like beer and wine. And what that actually meant was that the sort of Bootleggers could no longer make that stuff too alcoholic. It actually brought down the levels of alcohol content.

[A]

This is the reason why American beer has historically been so piss poor. Because there Was this like 3 1/2% limit on alcohol and there was a 40% limit on liquors. And you know, these things are not in, you know, they're not quite still there. But if you walk into any liquor store or duty free store today, you will still see on the gins and the vodkas and the whiskeys and all of these different liquors, by sheer coincidence, they all seem to be exactly 40%. And you're like, why is that right? For exactly this historical reason.

[C]

And what it did was it controlled access. Basically only certain sort of kinds of stores could sell beer. And beer had a well defined thing and it had this limit and similar with liquor. And you know, the reason I find that so fascinating is because it's actually kind of a, you could call it a success story of legalizing this previously illegal substance. And I want to compare that, if you don't mind, to the heroin addiction, the heroin epidemic. Because one of the things that is true about alcohol that's not true about heroin is that alcohol, you know, even if we didn't have limits, could only be 100% alcoholic.

[B]

Right?

[C]

It couldn't get more than 100% alcoholic. But heroin in the last 10 years has gotten seven times as strong as potent per gram. So my point being that if we like legalized and regulated heroin, I know it's radical, but this kind of like law about how strong heroin is allowed to be would actually be very powerful.

[B]

I've had versions of this argument many times. It's a long one, but I don't think it's crazy. I like it.

[A]

Are we all. I mean, I am perfectly happy to come out and say I think this minimum price idea in Scotland is a good idea. Are we unanimous on that?

[C]

I think it's certainly worth trying.

[B]

Yeah, I think it's. I want. So they've done something like it in or they of the only other place it's really done this is Saskatchewan, Canada. And there have been some positive reports out of Saskatchewan, but it would. And apparently British Columbia had a version too, but it wasn't really well implemented. So it's interesting to see a whole, essentially a whole country do this and just compare their results with.

[A]

When you say positive reports out of Saskatchewan. Is that a worthwhile Canadian initiative?

[B]

Oh, Jesus Christ.

[A]

Anyway, it's a journalism joke that was. It won the award for most boring Headline ever was Worthwhile Canadian initiative.

[B]

Paul Krugman likes to use it every time there's a damn good thing happens in Canada.

[A]

Okay, so worthwhile Scottish initiative. We like it. And we are going to now have a numbers round. Yeah, Cathy, for the numbers round.

[C]

So I have a number that's relatively local, and I apologize, but people may have heard about the abuse by prison guards at Rikers island, which is pretty much of a national story. There is a guy who is basically the union boss for the corrections officers. His name is Norman Seabrook, and he just got arrested on kickback charges. So he's the boss of this New York City correction officer.

[A]

Is this a story which involves Ferragamo bags?

[C]

What? Oh, yes, it is. Yes.

[B]

That's.

[C]

He's, like, really. He's, like, really into Ferragamo as a brand.

[A]

Yeah. Because obviously, when you think of prison bosses, what you think of is guys who are really into Ferragamo bags.

[C]

I don't mean you have to tell the audience what Ferragamo is.

[B]

I had a pair of Ferragamo offers when I was.

[A]

We don't need to tell the audience what Rikers island is, but we need to tell them what Ferragam is.

[C]

Rikers.

[A]

We have a very sophisticated audience, actually.

[B]

I would love. Audience, please write in and tell us whether or not you recognize Ferragamo, Rikers Island. Neither or both. I would like to hear a poll.

[A]

Slate [e-mail].

[C]

I haven't ever said my number. My number is 60,000, which is 60, which is how many dollars this guy got in kickbacks.

[A]

In a Ferragamo bag.

[C]

Yes. In cash. In a Ferragamo bag. In kickbacks for, like, forcing his Union to invest $20 million in a shitty hedge fund.

[A]

It wasn't actually such a shitty hedge fund.

[C]

Oh, really?

[A]

I mean, it is a shitty hedge fund. It's a very shitty hedge fund. But at least it got good returns.

[B]

Yeah. But also, like, talk about a cheap bribe.

[C]

I know. It's impressive. $60,000.

[A]

No. Yeah. And apparently one of the reasons he got caught was because he was so upset at how little it was and he wanted more.

[B]

Oh, well, that's.

[C]

Oh, my God.

[B]

Yeah. I mean, you kind of have to negotiate that ahead of time. You can't be like.

[C]

Well, anyway, I blogged about how evil this guy is, but just suffice it to say, if you listen to the Mets radio broadcast in New York City, this guy is on, like, fear mongering and just being awful like, every commercial break And I'm so glad he's arrested.

[A]

Oh, wow. So this is the guy who's like saying that if you don't support the prison officers then we will have rampant.

[B]

Crime or all the Ark of Asylum prisoners are going to break out and take.

[C]

Pretty much. He's pretty much like, we are protecting you from men who want to rape your daughter. He says that every single time. I'm like, oh my God, stop talking.

[A]

I don't have a daughter.

[C]

That's evil. I know, like, or kill your wife. I mean, he's very, very evil. I'm so glad he's arrested.

[A]

He's arrested. My number is 65 billion pounds, which is the amount of money which left sterling assets just in a month, basically in March.

[C]

So is that a really shitty hedge fund?

[A]

Works out at about £1.3 million a minute. At the height there were £77 billion left sterling assets over six months, compared to £2 billion in the previous six months. This is Brexit, obviously. This is huge and I'm sure this number is going up as Brexit becomes more and more of a real worry. The latest opinion polls show more people want to leave the EU than to remain. And so the result of these opinion polls is literally hundreds of billions of dollars leaving the pound, leaving stocks which are denominated in pounds, leaving bonds which are denominated in pounds. This is capital flow flight from Sterling. It's not capital flight from London, interestingly enough, it's probably all just staying in London, but just into euro assets or dollar assets or anything which isn't pounds. But the Brexit campaign, never mind the result, just the fact that there's a referendum at all is causing serious financial consequences.

[C]

Having spent the last four days listening, watching the BBC, it's everywhere, everywhere. They're very worried about it.

[B]

It's fascinating. So it's not so bad for the financial center, but not so great for the rest of the country. So I'm going to do something we don't usually do. Originally I was going to take this opportunity to make fun of Paul Ryan, which you all know I love. But instead I'm going to return to our earlier topic because there's a number from it I did not get to share. Oh, it involves Jerome Kervale again.

[C]

Oh, awesome.

[B]

And it is because I really want to talk about how hot he is. But it's 1400, which is the 1400 kilometers, which is the distance in the. From Rome to the French border essentially. So I mentioned how he tried to kind of transform Himself.

[A]

He's a pilgrim.

[B]

So he had this thing where he met the Pope after he got into all this trouble and then decided to do a reverse pilgrimage from Rome to the French border, just walking along. And he did, wearing this red windbreaker and turning himself into, I don't know, like the Johnny Appleseed of former rogue traders or something. I don't.

[C]

He also wrote a book, by the way, about his memories of a traitor. That's what it's called?

[B]

Yeah. Which is just like the most French fucking way to handle this sort of thing.

[C]

So does he have like a huge fan club? I don't know.

[B]

He kind of does, apparently.

[A]

Well, I mean, if you look like Liev Schreiber.

[B]

Yes, you look like Liev Schreiber. You've become like a penitent former rogue trader, now likes to indict the system. He's like the perfect. He's turned himself into the perfect victim of the system.

[A]

So that is it for us this week. I will say on behalf of of our frequent sponsor Harry's Raises, that even though Jerome Cavill is very good looking with his designer stubble, you can also be very good looking without designer stubble. In any case, thank you for listening. Do send us an email. The email address is slatemoneylate.com and as Jordan says, you have four choices. You can either have heard of Rikers island or you've heard of Ferragamo, or you've heard of neither or you've heard of both.

[B]

And let us know.

[A]

Let us know. Thanks to Audrey Quinn, the producer. Thanks to the executive producers Steve Lichti and Andy Bowers. Check out all of the Panoply [e-mail] Panoply and we will talk to you next week on Slate. Sam.